Chapter 32 - The Politics of Boom and Bust

I. The Republican “Old Guard” Returns

1. Newly elected President Warren G. Harding was tall, handsome, and
   popular, but he had a mediocre mind and he did not like to hurt
   people’s feelings.
   • Nor could he detect the corruption within his adminstration.
2. His cabinet did have some good officials, though, such as Secretary
   of State Charles Evans Hughes, who was masterful, imperious, incisive,
   and brilliant, Secretary of Commerce Herbert Hoover, and Secretary of
   the Treasury Andrew W. Mellon.
3. However, people like Senator Albert B. Fall of New Mexico, a
   scheming anti-conservationist, became secretary of the interior, and
   Harry M. Daugherty took over the reigns as attorney general.
   • These two became the worst of the scandalous cabinet members.

II. GOP Reaction at the Throttle

1. A good man but a weak one, Harding was the perfect front for
   old-fashioned politicians to set up for the nation a McKinley-style old
   order.
   • It hoped to further laissez-faire capitalism, and one of the
     examples of this was the Supreme Court, where Harding appointed four of
     the nine justices, including William H. Taft, former president of the
     United States.
2. In the early 1920s, the Supreme Court killed a federal child-labor law.
   • In the case of Adkins v. Children’s Hospital, the court
     reversed its ruling in the Muller v. Oregon case by invalidating a
     minimum wage law for women.
3. Under Harding, corporations could expand again, and anti-trust laws were not as enforced or downright ignored.
4. Men sympathetic to railroads headed the Interstate Commerce Commission.

III. The Aftermath of the War

1. Wartime government controls disappeared (i.e. the dismantling of
   the War Industries Board) and Washington returned control of railroads
   to private hands by the Esch-Cummins Transportation Act of 1920.
2. The Merchant Marine Act of 1920 authorized the Shipping Board,
   which controlled about 1,500 vessels, to get rid of a lot of ships at
   bargain prices, thus reducing the size of the navy.
   • Labor lost much of its power, as a strike was ruthlessly broken in
     1919, and the Railway Labor Board ordered a wage cut of 12% in 1922.
   • Labor membership shrank by 30% from 1920 to 1930.
3. In 1921, the Veterans’ Bureau was created to operate hospitals and provide vocational rehabilitation for the disabled.
   • Many veterans wanted the monetary compensation promised to them for their services in the war.
   • The Adjusted Compensation Act gave every former soldier a paid-up
     insurance policy due in twenty years. It was passed by Congress twice
     (the second time to override president Calvin Coolidge’s veto).

IV. America Seeks Benefits Without Burdens

1. Since America had never ratified the Treaty of Versailles, it was
   still technically at war with Germany, so in July of 1921, it passed a
   simple joint resolution ending the war.
2. The U.S. did not cooperate much with the League of Nations, but
   eventually, “unofficial observers” did participate in
   conferences. The lack of real participation though from the U.S. proved
   to doom the League.
3. In the Middle East, Secretary Hughes secured for American oil
   companies the right to share in the exploitation of the oil riches
   there.
4. Disarmament was another problem for Harding and he had to watch the
   actions of Japan and Britain for any possible hostile activities.
5. America also went on a “ship-scrapping” bonanza.
   • The Washington “Disarmament” Conference of 1921-22
     resulted in a plan that kept a 5:5:3 ratio of ships that could be held
     by the U.S., Britain, and Japan (in that order). This surprised many
     delegates at the conference (notably, the Soviet Union, which was not
     recognized by the U.S., was not invited and did not attend).
   • The Five-Power Naval Treaty of 1922 embodied Hughes’s ideas on ship ratios, but only after Japanese received compensation.
   • A Four-Power Treaty, which bound Britain, Japan, France, and the
     U.S. to preserve the status quo in the Pacific, replaced the
     20-year-old Anglo-Japanese Alliance.
   • The Nine-Power Treaty of 1922 kept the open door open in China.
   • However, despite all this apparent action, there were no limits
     placed on small ships, and Congress only approved the Four-Power Treaty
     on the condition that the U.S. was not bound, thus effectively
     rendering that treaty useless.
6. Frank B. Kellogg, Calvin Coolidge’s Secretary of State, won
   the Nobel Peace Prize for his role in the Kellog-Briand Pact (Pact of
   Paris), which said that all nations that signed would no longer use war
   as offensive means.

V. Hiking the Tariff Higher

1. Businessmen did not want Europe flooding American markets with
   cheap goods after the war, so Congress passed the Fordney-McCumber
   Tariff Law, which raised the tariff from 27% to 35%.
   • Presidents Harding and Coolidge, granted with authority to reduce
     or increase duties, and always sympathetic towards big industry, were
     much more prone to increasing tariffs than decreasing them.
2. However, this presented a problem: Europe needed to sell goods to
   the U.S. in order to get the money to pay back its debts, and when it
   could not sell, it could not repay.

VI. The Stench of Scandal

1. However, scandal rocked the Harding administration in 1923 when
   Charles R. Forbes was caught with his hand in the money bag and
   resigned as the head of the Veterans’ Bureau.
   • He and his accomplices looted the government for over $200 million.
2. The Teapot Dome Scandal was the most shocking of all.
   • Albert B. Fall leased land in Teapot Dome, Wyoming, and Elk Hills,
     California, to oilmen Harry F. Sinclair and Edward L. Doheny, but not
     until Fall had received a “loan” (actually a bribe) of
     $100,000 from Doheny and about three times that amount from Sinclair.
3. There were reports as to the underhanded doings of Attorney General
   Harry Daugherty, in which he was accused of the illegal sale of pardons
   and liquor permits.
4. President Harding, however, died in San Francisco on August 2,
   1923, of pneumonia and thrombosis, and he didn’t have to live
   through much of the uproar of the scandal.

VII. “Silent Cal” Coolidge

1. New president Calvin Coolidge was serious, calm, and never spoke more than he needed to.
2. A very morally clean person, he was not touched by the Harding
   scandals, and he proved to be a bright figure in the Republican Party.
   • It was ironic that in the Twenties, the “Age of
     Ballyhoo” or the “Jazz Age,” the U.S. had a very
     traditional, old-timey, and some would say boring president.

VIII. Frustrated Farmers

1. World War I had given the farmers prosperity, as they’d produced much food for the soldiers.
   • New technology in farming, such as the gasoline-engine tractor, had increased farm production dramatically.
   • However, after the war, these products weren’t needed, and the farmers fell into poverty.
2. Farmers looked for relief, and the Capper-Volstead Act, which
   exempted farmers’ marketing cooperatives from antitrust
   prosecution, and the McNary-Haugen Bill, which sought to keep
   agricultural prices high by authorizing the government to buy up
   surpluses and sell them abroad, helped a little.
   • However, Coolidge vetoed the second bill, twice.

IX. A Three-Way Race for the White House in 1924

1. Coolidge was chosen by the Republicans again in 1924, while
   Democrats nominated John W. Davis after 102 ballots in Madison Square
   Garden.
   • The Democrats also voted by one vote NOT to condemn the Ku Klux Klan.
2. Senator Robert La Follette led the Progressive Party as the third party candidate.
   • He gained the endorsement of the American Federation of Labor and
     the shrinking Socialist Party, and he actually received 5 million votes.
   • However, Calvin Coolidge easily won the election.

X. Foreign-Policy Flounderings

1. Isolationism continued to reign in the Coolidge era, as the Senate
   did not allow America to adhere to the World Court, the judicial wing
   of the League of Nations.
2. In the Caribbean and Latin America, U.S. troops were withdrawn from
   the Dominican Republic in 1924, but remained in Haiti from 1914 to
   1934.
   • Coolidge took out troops from Nicaragua in 1925, and then sent them
     back the next year, and in 1926, he defused a situation with Mexico
     where the Mexicans were claiming sovereignty over oil resources.
   • However, Latin Americans began to resent the American dominance of them.
3. The European debt to America also proved tricky.

XI. Unraveling the Debt Knot

1. Because America demanded that Britain and France pay their debts,
   those two nations placed huge reparation payments on Germany, which
   then, to pay them, printed out loads of paper money that caused
   inflation to soar.
   • At one point in October of 1923, a loaf of bread cost 480 million German marks.
2. Finally, in 1924, Charles Dawes engineered the Dawes Plan, which
   rescheduled German reparations payments and gave the way for further
   American private loans to Germany.
   • Essentially, the payments were a huge circle from the U.S. to
     Germany to Britain/France and back to the U.S. All told, the Americans
     never really gained any money or got repaid in genuine.
   • Also, the U.S. gained bitter enemies in France and Britain who were
     angry over America’s apparent greed and careless nature for
     others.

XII. The Triumph of Herbert Hoover, 1928

1. In 1928, Calvin Coolidge said, “I do not choose to
   run,” and his logical successor immediately became economics
   genius Herbert Hoover. Hoover spoke of “Rugged
   Individualism” which was his view that America was made great by
   strong, self-sufficient individuals, like the pioneers of old days
   trekking across the prairies, relying on no one else for help. This was
   the kind of folk America still needed, he said.
   • Hoover was opposed by New York governor Alfred E. Smith, a man who
     was blanketed by scandal (he drank during a Prohibitionist era and was
     hindered politically by being a Roman Catholic).
2. Radio turned out to be an important factor in the campaign, and
   Hoover’s personality sparkled on this new medium (compared to
   Smith, who sounded stupid and boyish).
3. Hoover had never been elected to public office before, but he had
   made his way up from poverty to prosperity, and believed that other
   people could do so as well.
4. There was, once again, below-the-belt hitting on both sides, as the
   campaign took an ugly turn, but Hoover triumphed in a landslide, with
   444 electoral votes to Smith’s 87.

XIII. President Hoover’s First Moves

1. Hoover’s Agricultural Marketing Act, passed in June of 1929,
   was designed to help the farmers help themselves, and it set up a
   Federal Farm Board to help the farmers.
   • In 1930, the Farm Board created the Grain Stabilization Corporation
     and the Cotton Stabilization Corporation to bolster sagging prices by
     buying surpluses.
2. The Hawley-Smoot Tariff of 1930 raised the tariff to an unbelievable 60%!
   • Foreigners hated this tariff that reversed a promising worldwide
     trend toward reasonable tariffs and widened the yawning trade gaps.

XIV. The Great Crash Ends the Golden Twenties

1. Hoover confidently predicted an end to poverty very soon, but on
   October 29, 1929, a devastating stock market crash caused by
   over-speculation and overly high stock prices built only upon
   non-existent credit struck the nation.
   • Losses, even blue-chip securities, were unbelievable as by the end
     of 1929, stockholders had lost over $40 million in paper values (more
     than the cost of World War I)!
   • By the end of 1930, 4 million Americans were jobless, and two years later, that number shot up to 12 million.
   • Over 5,000 banks collapsed in the first three years of the Great Depression.
   • Lines formed at soup kitchens and at homeless shelters.

XV. Hooked on the Horn of Plenty

1. The Great Depression might have been caused by an overabundance of
   farm products and factory products. The nation’s capacity to
   produce goods had clearly outrun its capacity to consume or pay for
   them.
2. Also, an over-expansion of credit created unsound faith in money, which is never good for business.
3. Britain and France’s situations, which had never fully recovered from World War I, worsened.
4. In 1930, a terrible drought scorched the Mississippi Valley and thousands of farms were sold to pay for debts.
5. By 1930, the depression was a national crisis, and hard-working
   workers had nowhere to work, thus, people turned bitter and also turned
   on Hoover.

*Villages of shanties and ragged shacks were called Hoovervilles and
were inhabited by the people who had lost their jobs. They popped up
everywhere.

XVI. Rugged Times for Rugged Individualists

1. Hoover unfairly received the brunt of the blame for the Great
   Depression, but he also did not pass measures that could have made the
   depression less severe than it could have been.
   • Critics noted that he could feed millions in Belgium (after World War I) but not millions at home in America.
2. He did not believe in government tampering with the economic
   machine and thus moving away from laissez faire, and he felt that
   depressions like this were simply parts of the natural economic
   process, known as the business cycle.
   • However, by the end of his term, he had started to take steps for the government to help the people.

XVII. Hoover Battles the Great Depression

1. Finally, Hoover voted to withdraw $2.25 billion to start projects to alleviate the suffering of the depression.
   • The Hoover Dam of the Colorado River was one such project.
2. The Muscle Shoals Bill, which was designed to dam the Tennessee
   River and was ultimately embraced by the Tennessee Valley Authority,
   was vetoed by Hoover.
3. Early in 1932, Congress, responding to Hoover’s appeal,
   established the Reconstruction Finance Corporation (RFC), which became
   a government lending bank. This was a large step for Hoover away from
   laissez faire policies and toward policies the Democrats (FDR) would
   later employ.
   • However, giant corporations were the ones that benefited most from
     this, and the RFC was another one of the targets of Hoover’s
     critics.
4. In 1932, Congress passed the Norris-La Guardia Anti-Injection Act,
   which outlawed anti-union contracts and forbade the federal courts to
   issue injunctions to restrain strikes, boycotts, and peaceful picketing
   (this was good for unions).
5. Remember, that in past depressions, the American public was often
   forced to “sweat it out,” not wait for government help. The
   trend was changing at this point, forced to do so by the Depression.

XVIII. Routing the Bonus Army in Washington

1. Many veterans, whom had not been paid their compensation for WWI, marched to Washington, D.C. to demand their entire bonus.
   • The “Bonus Expeditionary Force” erected unsanitary
     camps and shacks in vacant lots, creating health hazards and annoyance.
   • Riots followed after troops came in to intervene (after Congress tried to pass a bonus bill but failed), and many people died.
   • Hoover falsely charged that the force was led by riffraff and reds
     (communists), and the American opinion turned even more against him.

XIX. Japanese Militarists Attack China

1. In September 1931, Japan, alleging provocation, invaded Manchuria and shut the Open Door.
2. Peaceful peoples were stunned, as this was a flagrant violation of
   the League of Nations covenant, and a meeting in Geneva, Switzerland,
   was arranged.
3. An American actually attended, but instead of driving Japan out of
   China, the meeting drove Japan out of the League, thus weakening it
   further.
4. Secretary of State Henry Stimson did indicate that the U.S.
   probably would not interfere with a League of Nations embargo on Japan,
   but he was later restrained from taking action.
   • Since the U.S. took no effective action, the Japanese bombed
     Shanghai in 1932, and even then, outraged Americans didn’t do
     much to change the Japanese minds.
   • The U.S.’s lackluster actions support the notion that America’s isolationist policy was well entrenched.

XX. Hoover Pioneers the Good Neighbor Policy

1. Hoover was deeply interested in relations south of the border, and
   during his term, U.S. relations with Latin America and the Caribbean
   improved greatly.
   • Since the U.S. had less money to spend, it was unable to dominate
     Latin America as much, and later, Franklin D. Roosevelt would build
     upon these policies.